TRANSPORT REFORM AND REHABILITATION...

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TRANSPORT REFORM ANDREHABILITATION CENTERLOAN NO. 8143-GE(SECOND SECONDARY AND LOCAL ROADSREHABILITATION PROJECT)

Special Purpose Project Financial Statements

For the Year Ended 31 December 2016

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III TRANSPORT REFORM AND REHABILITATION CENTER

SECOND SECONDARY AND LOCAL ROADS REHABILITATIONLOAN NO. 8143-GE

TABLE OF CONTENTS

IPage

STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATIONAND APPROVAL OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS 1

INDEPENDENT AUDITORS' REPORT 2-3

SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016:

I Statement of Sources and Uses of Funds 4

I Balance Sheet Statement 6

Statement of Expenditure Withdrawal Schedule 7

Designated Account Statement 8

Notes to the Special Purpose Project Financial Statements 9-14

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1TRANSPORT REFORM AND REHABILITATION CENTERSECOND SECONDARY AND LOCAL ROADS REHABILITATIONLOAN NO. 8143-GE

STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATIONAND APPROVAL OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016

Management of the Second Secondary and Local Roads Rehabilitation Project (the "Project) implementedby the Transport Reform and Rehabilitation Center ("TRRC") is responsible for the preparation of thespecial purpose project financial statements that present fairly the financial position of the Project as at 31December 2016, and its sources and uses of funds and movement in Designated account for the yearended 31 December 2016, in compliance with the Cash Basis International Public Sector AccountingStandard, Financial Reporting under the Cash Basis of Accounting ("IPSAS - Cash Basis"), and inconformity with the World Bank's Financial Management Sector Board's "Guidelines: Annual FinancialReporting and Auditing for World Bank Financed Activities" (the "World Bank Guidelines").

In preparing the special purpose project financial statements, management is responsible for:

* Properly selecting and applying accounting policies;* Presenting information, including accounting policies, in a manner that provides relevant, reliable,

comparable and understandable information;* Providing additional disclosures when compliance with the specific requirements in IPSAS - Cash

Basis are insufficient to enable users to understand the impact of particular transactions, otherevents and conditions on the Project, financial position and its sources and uses of funds andmovements in Designated accounts;Making an assessment of the Projects ability to continue as a going concern.

1 Management is also responsible for:

Designing, implementing and maintaining an effective and sound system of internal controls,throughout the Project;

* Maintaining adequate accounting records that are sufficient to show and explain the Project'stransactions and disclose with reasonable accuracy at any time the financial position of the Project,and which enable them to ensure that the special purpose project financial statements of the Projectcomply with the Guidelines on Annual Financial Reporting and Auditing for World Bank - FinancedActivities issued by the World Bank's Financial Management Sector Board;

* Maintaining statutory accounting records in compliance with Georgian legislation;* Taking such steps that are reasonably available to them to safeguard the assets of the Project; and* Preventing and detecting fraud and other irregularities.

1 The special purpose project financial statements for the year ended 31 December 2016 were authorizedfor issue on 29 June 2017 by the Management.

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On behalf of Management:

IGiorgi Tsagareli Marina M IladzeDirector Financial anager

29 June 2017 1 29 June 2017

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IMKPMG Georgia LLC2nd Floor, Besiki Business Centre4, Besiki Street0108 Tbilisi, GeorgiaTelephone +995 322 93 5713Internet www.kpmg.ge

Independent Auditors' Report on Special Purpose Project Financial Statements

To the management of Transport Reform and Rehabilitation Center

Opinion

We have audited the special purpose project financial statements of the Second SecondaryAnd Local Roads Project (the "Project"), financed under the International Bank forReconstruction and Development (the "IBRD"), Loan Agreement No. 8143-GE, dated 22 March2012, implemented by the Transport Reform and Rehabilitation Center (the "Center"), whichcomprise the Statement of Balance Sheet as at 31 December 2016 and the Statements ofSources and Uses of Funds, Statement of Expenditures Withdrawal Schedule ("SOEs") andSpecial Account Statement for the year then ended, and notes, comprising a summary ofsignificant accounting policies and other explanatory information. The special purpose projectfinancial statements have been prepared by management in accordance with the InternationalPublic Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accountingand in conformity with the World Bank's Financial Management Sector Board's "Guidelines:Annual Financial Reporting and Auditing for World Bank-Financed Activities" (the "World BankGuidelines") as described in Note 2 to the special purpose project financial statements.

In our opinion, the accompanying special purpose project financial statements present fairly, inall material respects, the financial position of the Project as at 31 December 2016, and itssources and uses of funds for the year then ended in accordance with the International PublicSector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting and theWorld Bank Guidelines.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Ourresponsibilities under those standards are further described in the Auditors' Responsibilities forthe Audit of the Special Purpose Project Financial Statements section of our report. We areindependent of the Center in accordance with the International Ethics Standards Board forAccountants' Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilledour other ethical responsibilities in accordance with the IESBA Code. We believe that the auditevidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Matters

Data included on pages 4 to 14 of the accompanying special purpose project financialstatements that are marked as "Unaudited" have not been audited.

Emphasis of Matter - Basis of Accounting and Restriction on Use

We draw attention to Note 2 to the special purpose project financial statements, whichdescribes the basis of accounting. The special purpose project financial statements areprepared to assist the Center to comply with the requirements of IBRD and for providinginformation to the Government of Georgia and IBRD to assist them in evaluating the Projectimplementation. As a result, the special purpose project financial statements may not besuitable for another purpose. Our opinion is not modified in respect of this matter.

KPMG Georgia LLC, a company incorporated under the Laws of Georgia, amember firm of the KPMG network of independent member firms affiliated withKPMG Intemational Cooperative (KPMG Intemational"), a Swiss entity.

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ITransport Reform and Rehabilitation CenterIndependent Auditors' ReportPage 2

Responsibilities of Management and Those Charged with Governance for theSpecial Purpose Project Financial Statements

Management is responsible for the preparation and fair presentation of these special purposeI project financial statements in accordance with the International Public Sector AccountingStandard: Financial Reporting Under the Cash Basis of Accounting and the World BankGuidelines, for determining the acceptability of the basis of accounting and for such internalcontrol as management determines is necessary to enable the preparation of special purposeproject financial statements that are free from material misstatement, whether due to fraud or

I Those charged with governance are responsible for overseeing the Center's financial reportingprocess.

5 Auditors' Responsibilities for the Audit of the Special Purpose Project FinancialStatements

Our objectives are to obtain reasonable assurance about whether the special purpose projectI financial statements as a whole are free from material misstatement, whether due to fraud orerror, and to issue an auditors' report that includes our opinion. Reasonable assurance is ahigh level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs

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will always detect a material misstatement when it exists. Misstatements can arise from fraudor error and are considered material if, individually or in the aggregate, they could reasonablybe expected to influence the economic decisions of users taken on the basis of these special3 purpose project financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain3 professional skepticism throughout the audit. We also:

* Identify and assess the risks of material misstatement of the special purpose projectfinancial statements, whether due to fraud or error, design and perform audit proceduresresponsive to those risks, and obtain audit evidence that is sufficient and appropriate toI provide a basis for our opinion. The risk of not detecting a material misstatement resultingfrom fraud is higher than for one resulting from error, as fraud may involve collusion,forgery, intentional omissions, misrepresentations, or the override of internal control.I Obtain an understanding of internal control relevant to the audit in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the Center's internal control.I Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management.

0 Evaluate the overall presentation, structure and content of the special purpose projectI financial statements, including the disclosures, and whether the special purpose projectfinancial statements represent the underlying transactions and events in a manner thatachieves fair presentation.

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We communicate with those charged with governance regarding, among other matters, theplanned scope and timing of the audit and significant audit findings, including any significant3 deficiencies in internal control that we identify during our audit.

The engag ment partnerlon tfi65tldit, esulting in this independent auditors' report is:

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I ~Tbilisi, d~eorgia -

29 June 2017 "INN,'

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ITRANSPORT REFORM AND REHABILITATION CENTERSECOND SECONDARY AND LOCAL ROADS REHABILITATION PROJECTLOAN NO. 8143-GE

STATEMENT OF SOURCES AND USES OF FUNDSFOR THE YEAR ENDED 31 DECEMBER 2016(in US Dollars)

Actual as at Planned as at31 December 2016 31 December 2016 VarianceYear Cumulative Year Cumulative Year Cumulative

to date to date to date to date to date to dateUnaudited Unaudited Unaudited Unaudited

FUNDS RECEIVED BYSOURCESInternational Bank forReconstruction and 3,422,872 16,829,061Development ("IBRD") fundsGovernment of Georgia 965,702 3,578,177("GoG") co-financing

I TOTAL FUNDS RECEIVED 4,388,574 20,407,238

Foreign exchange difference (150) (150)

LESS: EXPENDITURES

Component 1 - Rehabilitationand Improvement of Selected 3,794,996 14,077,867 3,794,996 14,077,867 -Secondary and Local Roads(IBRD - 80%)Component 2 - InstitutionalStrengthening and Project 85,264 446,226 85,264 446,226 -Management (IBRD - 80%)

IBRD TOTAL 3,880,260 14,524,093 3,880,260 14,523,093 -

Component 1 (GoG - 20%) 944,298 3,466,497 944,298 3,466,497 -Component 2 21,254 111,530 21,254 111,530(GoG - 20%)

GoG TOTAL 965,552 3,578,027 965,552 3,578,027 - -

TOTAL EXPENDITURES BYCOMPONENTS 4,845,812 18,102,120 4,845,812 18,102,120

I UNALLOCATED - 75,000 - 75,000Front end fees - 75,000 - 75,000_- -TOTAL UNALLOCATED

I EX E D T R S- 75,000 - 75,000 --EXPENDITURES

TOTAL PROJECT 4,845,812 18,177,120EXPENDITURESNET FLOWS OF FUNDS (457,388) 2,229,968

The special purpose project financial statements were approved by the management of Transport Reformand Rehabilitation Center on 29 June 2017 and were signed on its behalf by:

Giorgi Tsagareli Marina Ma lj adzeDirector Financial Manager

29 June 2017 29 June 2017

The notes on pages 9 to 14 form an integral part of these special purpose project financial statements.

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STATEMENT OF SOURCES AND USES OF FUNDSI FOR THE YEAR ENDED 31 DECEMBER 2016

(in US Dollars)

Actual as at Planned as at31 December 2015 31 December 2015 Variance

Year Cumulative Year Cumulative Year Cumulativeto date to date to date to date to date to date

Unaudited Unaudited Unaudited UnauditedFUNDS RECEIVED BYSOURCESInternational Bank forReconstruction and 5,292,801 13,406,189Development ("IBRD") fundsGovernment of Georgia ("GoG") 815,547 2,612,475co-financingI TOTAL FUNDS RECEIVED 6,108,348 16,018,664

Foreign exchange difference

LESS: EXPENDITURESComponent 1 Rehabilitation andImprovement of Selected 2,565,614 10,282,871 2,565,614 10,282,871Secondary and Local Roads(IBRD - 80%)Component 2 InstitutionalStrengthening and Project 296,150 360,962 296,150 360,962 -Management (IBRD - 80%)

IBRD TOTAL 2,861,764 10,643,833 2,861,764 10,643,833 -

omponent 1 741,482 2,522,199 741,482 2,522,199 -

Component 2 74,065 90,276 74,065 90,276(GoG - 20%)

GoG TOTAL 815,547 2,612,475 815,547 2,612,475 -

TOTAL EXPENDITURES BY 3,677,311 13,256,308 3,677,311 13,256,308COMPONENTS__________ __________ __________

UNALLOCATED - 75,000 - 75,000 -Front end feesTOTAL UNALLOCATED - 75,000 - 75,000EXPENDITURES

TOTAL PROJECTTOTALIP R E C 3,677,311 13,331,308EXPENDITURES __________

NET FLOWS OF FUNDS 2,431,037 2,687,356

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BALANCE SHEET STATEMENTAS OF 31 DECEMBER 2016(in US Dollars)

31 December 31 December2016 2015

ASSETSIBRD Designated account 2,229,968 2,687,356

TOTAL ASSETS 2,229,968 2,687,356

I Funds received:Funds received from IBRD 16,829,061 13,406,189I Funds received from GoG 3,578,177 2,612,475

Total funds received 20,407,238 16,018,664

Project expenditures:Financed by IBRD (14,524,093) (10,643,833)Financed by GoG (3,578,027) (2,612,475)Unallocated (75,000) (75,000)

Total project expenditures (18,177,120) (13,331,308)

Foreign exchange difference (150) -

TOTAL PROJECT EXPENDITURES AND OTHER FUNDS 2,229,968 2,687,356

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The special purpose project financial statements were approved by the management of Transport ReformI and Rehabilitation Center on 29 June 2017 and were signed on its behalf by:

Giorgi Tsagareli Marina M IadzeDirector Financial Manager

29 June 2017 29 June 2017


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STATEMENT OF EXPENDITURE WITHDRAWAL SCHEDULEFOR THE YEAR ENDED 31 DECEMBER 2016(in US Dollars)

1Withdrawal Withdrawal Total SOE Total SOE Total SOE Attributable Attributable Total SOE

No. application in attributable attributable to 2016 - to 2016 - attributabledate withdrawal to 2015 to 2016 Component Component to 2017

schedule 1 2Unaudited

7 17-Mar-16 240,588 237,573 3,015 - 3,0158 17-May-16 24,511 - 24,511 - 24,5119 14-Dec-15 4,761 - 4,761 - 4,76110 17-Mar-16 23,109 - 23,109 21,861 1,248

11 9-Jan-17 243,962 - 243,962 238,782 5,180536,931 237,573 299,358 260,643 38,715

IWithdrawal Withdrawal Total SOE Total SOE Total SOE Attributable Attributable Total SOE

No. application in attributable attributable to 2015 - to 2015 - attributabledate withdrawal to 2014 to 2015 Component Component to 2016

schedule 1 2

4 10-Feb-15 1,442,202 1,442,202 - - -

01-SC 27-May-15 - - - - -

5 7-Jul-15 65,464 - 65,464 19,552 45,9126 14-Dec-1 5 1,469,930 - 1,469,930 1,443,202 26,728-

7 17-Mar-16 240,588 - 237,573 234,721 2,852 3,0153,218,184 1,442,202 1,772,967 1,697,475 75,492 3,015

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Giorgi Tsagareli (f Marina Maj IadzeDirector Financial Manager

I 29 June 2017 29 June 2017

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1TRANSPORT REFORM AND REHABILITATION CENTERSECOND SECONDARY AND LOCAL ROADS REHABILITATION PROJECTLOAN NO. 8143-GE

DESIGNATED ACCOUNT STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2016(in US Dollars)

Balance as at 1 January 2016 2,687,356

ADDFunds received from IBRD in 2016 3,422,872

DEDUCTFunds used for the Project expenditures in 2016 (3,880,260)

Balance as at 31 December 2016 2,229,968

I Balance as at 1 January 2015 256,319

ADDFunds received from IBRD in 2015 5,118,777

DEDUCTFunds used for the Project expenditures in 2015 (2,687,740)

Balance as at 31 December 2015 2,687,356

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Giorgi Tsagareli Marina M dzeDirector Financial anager

29 June 2017 29 June 2017


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1I_ _ _ _ _ _ __ _ _ _ _ _ _


NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016(in US Dollars)

1. BACKGROUND

The Investment Center for Euro-Asian Transport Corridor was established in 1995 as a non-entrepreneurial and non-profit legal entity under the laws of Georgia. In accordance with theGeorgian Presidential Decree N 119 dated 16 April 1995. The founder of the Investment Center forEuro-Asian Transport Corridor is the Georgian Government.

A project unit named "Transport Reform and Rehabilitation Center (the "Center") was formed withinthe Investment Center for Euro-Asian Transport Corridor. The Center's principal activity is to manageallocated credits/loans received from the International Development Association ("IDA"), theInternational Bank for Reconstruction and Development ("IBRD"), the Asian Development Bank("ADB") and the European Investment Bank ("EIB") and monitor the implementation of transportsector projects.

1 The Center implements the Second Secondary and Local Roads Rehabilitation Project (the"Project"), financed under the International Bank for Reconstruction and Development (the "IBRD").The Loan Agreement No.8143-GE (the "Agreement") in the amount of 30 million United StatesDollars ("USD") was signed between the Government of Georgia ("GoG") and IBRD on 22 March2012 ("inception"). The main objectives of the Project are: rehabilitation and improvement of about225 kilometers for at least nineteen sections of secondary and local roads and strengthening thecapacity of Government of Georgia, Road Department of the Ministry of Regional Development andInfrastructure of Georgia (RDMRDI) and the local road construction industry to plan and bettermanage the road network.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance - These special purpose project financial statements have been preparedin accordance with the Cash Basis International Public Sector Accounting Standard, FinancialReporting under a Cash Basis of Accounting and in conformity with the World Bank's FinancialManagement Sector Board's "Guidelines: Annual Financial Reporting and Auditing for World Bank-

I Financed Activities" (the "World Bank Guidelines").

The purpose of these special purpose project financial statements is to provide information to theGovernment of Georgia and International Bank for Reconstruction and Development (IBRD) to assistthem in evaluating the Project implementation.

Cash basis of accounting - Project financing is recognized as a source of project funds when thecash is received. Project expenditures are recognized as a use of project funds when the paymentsare made.

Presentation currency - The national currency of Georgia is the Georgian Lari ("GEL"). Thesespecial purpose project financial statements are presented in United States Dollars ("US Dollar" or"USD"), since management believes that this currency is more meaningful for the users of thespecial purpose project financial statements. All financial information presented in USD has beenrounded to the nearest USD unless otherwise stated.

Transactions in other currencies - Transactions in currencies other than presentation currencyare converted to US Dollars at the exchange rate prevailing at the date of the transaction.

Cash - Cash represents balances with State Treasury of Georgia.

3. DESIGNATED ACCOUNT

Designated account is a designated disbursement account of the Project that is maintained in USDollars at the State Treasury to ensure the payment of eligible expenditures, within defined limits,which do not require individual authorization from IBRD in accordance with the Agreement.

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UTRANSPORT REFORM AND REHABILITATION CENTERSECOND SECONDARY AND LOCAL ROADS REHABILITATION PROJECTLOAN NO. 8143-GE


1 4. BASIS OF FUNDING

According to the terms of the Agreement, the expenditures of all works, goods and consultantservices contracts, including all applicable taxes are co-financed by proceeds received from IBRDand GoG at a proportional rate of 80% and 20%, respectively.

The land acquisition and associated resettlement costs are funded entirely by the GoG.

5. METHODS OF WITHDRAWAL

The methods of withdrawal used from the inception of the loan to 31 December 2016 were asfollows:

1 (a) Designated account

The Center withdraws the eligible amounts from the Designated account and prepares and sendsreplenishment requests to the World Bank with authorized signatures. The replenishment requestsand respective documentation are reviewed by the World Bank and an approved amount istransferred to the Designated account.

I (b) Direct Payment

Available amounts are drawn from time to time within limits determined under the loan agreement fordirect payments of eligible expenditures for sub-projects. Direct payments are made by the WorldBank directly to third parties. The Center forms withdrawal applications for request of directpayments and sends it to the World Bank, for settlement.

(c) Special Commitment

Special Commitment is a payment to a financial institution for the cost of the Project's expenditurescovered by a special commitment. A special commitment is an irrecoverable commitment enteredinto by the World Bank in writing to pay such amount notwithstanding any subsequent suspension orcancelation. The financial institution provides confirmation that such expenditures have beenincurred at the time a request payment is made.

(d) GoG Current Account

The Project maintains a separate account where funds from the GOG are accumulated. The fundsare further disbursed to sub-contractors based on the share of expenditures to be incurred. Theproject has common GEL account and special organization code for their funds in State Treasury ofGeorgia.

6. STATEMENT OF EXPENDITURES (SOE)

1 Withdrawals are to be made on the basis of SOEs for expenses on contracts within the followingcontractual limits:

(i) All expenditures for works valued at less than USD 4,000,000;(ii) Consultant services contracts (firms) valued at less than USD 200,000;(iii) Consultant services contracts (individuals) valued at less than USD 50,000;(iv) All expenditures for goods and non-consulting services valued at less than USD 300,000.

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I7. RECONCILIATION OF AMOUNTS SHOWN AS RECEIVED FROM THE IBRD TO ACTUALI EXPENDITURES OF THE PROJECT

31 December2016

Application of Withdrawals ScheduleExpenses incurred in 2016 as per the Applications of Withdrawals Schedule 3,880,260Expenses incurred in 2016 without Applications of Withdrawals Schedule -

I 3,880,260

IBRD funds received in 2016 (replenishments) 3,422,872IBRD funds received in 2016 (special commitments) _

3,422,872

Add:Opening BalanceDesignated account 2,687,356I 2,687,356Less:Closing BalanceDesignated account 2,229,968

2,229,968

TOTAL EXPENDITURES INCURRED IN 2016 3,880,260

31 December2015

Application of Withdrawals ScheduleExpenses incurred in 2015 as per the Applications of Withdrawals Schedule 2,861,764Expenses incurred in 2015 without Applications of Withdrawals Schedule -

2,861,764

IBRD funds received in 2015 (replenishments) 5,118,777IBRD funds received in 2015 (special commitments) 174,024

5,292,801Add:Opening BalanceDesignated account 256,319

256,319Less:Closing BalanceDesignated account 2,687,356

5,11,77

2,687,356

TOTAL EXPENDITURES INCURRED IN 2015 2,861,764



8. PROJECT EXPENDITURES BY COMPONENTS

Actual as at Planned as atProject activities 31 December 2016 31 December 2016 Variance

Year Cumulative Year Cumulative Year Cumulativeto date to date to date to date to date to date

Unaudited Unaudited Unaudited UnauditedComponent 1 -Rehabilitation andImprovement of SelectedSecondary and Local

Civil works 3,998,439 15,302,518 3,998,439 15,302,518 -Technical supervision 639,169 1,628,988 639,169 1,628,988 -Design - 405,040 - 405,040 -

Technical assistance for 3,094 - 3,94RDMDRIConsultancy 101,686 204,724 101,686 204,724 -

TOTAL COMPONENT 1 4,739,294 17,544,364 4,739,294 17,544,364 -

Component 2 -InstitutionalStrengtheningGoods 26,418 307,185 26,418 307,185 -Road management 80,100 250,571 80,100 250,571 -Support

I TOTAL COMPONENT 2 106,518 557,756 106,518 557,756 -

TOTAL EXPENDITURES 4,845,812 18,102,120 4,845,812 18,102,120 -BY COMPONENTS ______________ _________ ______

I UNALLOCATEDFront end fees -_75,000 - 75,000 - -

TOT AL UNALLOCATED 75,000 - 75,000 -EXPENDITURE

TOTAL PROJECT 4,845,812 18,177,120 4,845,812 18,177,120 -EXPENDITURES_____ ___________ _____

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I PROJECT EXPENDITURES BY COMPONENTS

Actual as at Planned as at

Project activities 31 December 2015 31 December 2015 VarianceYear Cumulative Year Cumulative Year Cumulativeto date to date to date to date to date to date

Unaudited Unaudited Unaudited UnauditedComponent 1 -Rehabilitation andImprovement of SelectedSecondary and Local

Civil works 2,727,197 11,304,079 2,727,197 11,304,079 - -

Technical supervision 475,493 989,819 475,493 989,819 - -

Design - 405,040 - 405,040 -Technical assistance for 1,369 3,095 1,369 3,095 -RDMDRIConsultancy 103,037 103,037 103,037 103,037 - -

TOTAL COMPONENT 1 3,307,096 12,805,070 3,307,096 12,805,070 - -

Component 2 -InstitutionalStrengtheningGoods 280,767 280,767 280,767 280,767 - -

Road management 89,448 170,471 89,448 170,471 - -support

TOTAL COMPONENT 2 370,215 451,238 370,215 451,238 -

TOT AL EXPENDITURES 3,677,311 13,256,308 3,677,311 13,256,308BY COMPONENTS

I UNALLOCATED 75,000 - 75,000Front end fees - 75,000 - 75,000 - -

TOT AL UNALLOCATED - 75,000 - 75,000 - -

EXPENDITURE

TOTAL PROJECT 3,677,311 13,331,308 3,677,311 13,331,308EXPENDITURES __________ ____ _______________

The Project consists of the following main components:

1 * Rehabilitation and improvement of about 225 kilometers for at least nineteen sections of secondaryand local roads, through the carrying out of works and the provision of goods and consultants'services.

* Strengthen the capacity of the Road Department of the Ministry of Regional Development andInfrastructure (RDMDRI) of Georgia and Foreign Project Unit (FPU) in project management andimplementation, identifying, developing and implementing road safety measures on secondary andlocal roads and carrying out impact evaluations.

The categories of expenditures incurred are presented in line with the categories specified in the

Agreement.

Each component of the Project are further divided into four types of expenses for the SOE purposes: civilworks, goods, consultants' services and operating costs.

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1 9. COMMITMENTS AND CONTINGENCIES

Management is not aware of any commitments and contingencies which would have a materialimpact on this special purpose project financial statements as at 31 December 2016 for the year thenended.

I 10. GEORGIAN OPERATING ENVIRONMENT

The Center's operations are located in Georgia. Consequently, the Center is exposed to theeconomic and financial markets of Georgia, which display characteristics of an emerging market.The legal, tax and regulatory frameworks continue development, but are subject to varyinginterpretations and frequent changes which together with other legal and fiscal impedimentscontribute to the challenges faced by entities operating in Georgia. The special purpose projectfinancial statements reflect management's assessment of the impact of the Georgian operatingenvironment on the operations of the Center. The future operating environment may differ fromI management's assessment.

11. EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE

There were no significant events subsequent to the balance sheet date.

12. APPROVAL OF SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS

These special purpose project financial statements were authorized for issue by the management ofthe Center on 29 June 2017.

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